The American economic expansion is finally accomplishing one of the country’s most needed social improvements: getting the long-term unemployed reattached to the labor market. Income inequality gets much of the press today, but as Harvard economist and Manhattan Institute senior fellow Ed Glaeser points out, long-term joblessness is the more serious problem. The unemployed face a heightened risk of serious ills ranging from physical maladies and mental health problems to divorce. Read more here....

New Release: Monetary Policy In An Uncertain Worldquoting Kevin Warsh via Cato Institute
Ten years after the 2008 financial crisis we are again facing the possibility of economic turmoil as the Fed and other central banks exit their unconventional monetary policies by raising interest rates and shrinking their balance sheets.

Who Profits? Anthony EsolenMy father was not an easy man to categorize when it came to politics. He was, like almost everybody else where I grew up, a registered Democrat. Republicans in New England and the middle Atlantic states were not fond of Catholic immigrants from Ireland, Italy, and Poland, and the immigrants were not fond of the […]

TrumponomicsRamesh Ponnuru and Michael R. Strain | National Review Contrary to President Trump’s remarks, there is no reason to think that increased deficits will be a short-term phenomenon. Over time, the increase in the national debt will have a deleterious effect on the economy’s performance by crowding out private economic activity leading to a decrease in output, investment, and wages relative to what they would have been without the additional debt.

How Cross Subsidies Hinder Economic Reformsby John H. Cochrane via Chicago Booth ReviewCross subsidies are an underappreciated original sin of economic stagnation. To transfer money from A to B, the government could simply raise taxes on A and provide vouchers or otherwise pay competitive suppliers on behalf of B.

In his July 1986 Presidential Address to the Western Economic Association, Allan Meltzer noted that “the tradition in which many of us were raised is that policymakers should adjust policy actions based on forecasts of the future path of the economy and their best judgments.” Meltzer went on to show that Federal Reserve staff forecasts on economic performance were often so imprecise that predictions just one quarter into the future could not distinguish statistically between the likelihood of strong economic performance or a recession. Read more here....

Why Tax Rate Mattersby John H. Cochrane via PolicyEdMarginal tax rates – how much someone is taxed on the next dollar they earn – affect how much people work, save, and invest. Everyone is affected by their marginal tax rate, and lower marginal tax rates lead to more rapid economic growth.

The quest for legitimacy in central banking and the regulatory stateStan Veuger | AEIdeas Parts of the public sector are not under the direct control of elected representatives. Instead, judges, the military, and independent regulators exercise delegated power over a range of areas and activities. The response to the global financial crisis and the recession has brought central bankers into the limelight.

Book Of The Week: Central Bankers And How To Hold Them To Accountfeaturing Michael McFaul via Money WeekCentral bankers have played a huge role in both the economy and financial markets over the past decade, most notably through successive rounds of quantitative easing aimed at preventing economic collapse. However, critics allege that they now wield large amounts of power but lack accountability.

Treasury Secretary Steve Mnuchin wins, America losesDerek Scissors | AEIdeas The vague-to-the-point-of-useless deal and complete absence of American action could have been pulled straight from the Obama or Bush administrations. Secretary Steve Mnuchin is perfectly imitating former Treasury Secretaries Jack Lew, Timothy Geithner, and Henry Paulson, who led us here.

Raghuram Rajan Sees Possible "Magic Moment" On Inflationinterview with Raghuram Rajan via BloombergHoover Institution fellow Raghuram Rajan explains why he is concerned about spillover effects on emerging markets from the policies of central banks in industrialized nations, adding that it’s appropriate for the Federal Reserve to be raising interest rates now as a precautionary move against the possibility of a "magic moment" when tighter labor markets around the world starts pushing up wages and causes inflation to accelerate.

Wages And Unemploymentmentioning David R. Henderson via Seeking AlphaA few people have been talking about wage growth and unemployment lately. I have put together a few posts on the Phillips Curve. (This was the latest.) David Henderson has a couple of posts about wage growth, building on a post from Paul Krugman.

Remembering Allan Meltzer and the Lessons He Taught UsPeter Ireland, E21Allan Meltzer, distinguished Professor of Economics at Carnegie-Mellon University, founder of the Shadow Open Market Committee, and author of a monumental multi-volume History of the Federal Reserve, passed away one year ago today, on May 8, 2017. Great minds like Meltzer’s are all too rare and, once gone, can never be replaced. No one possesses anything like Meltzer’s extraordinary command over economic theory, sweeping knowledge of monetary history, and astute political acumen. Read more here...

Priorities On The Path To Normalizationby Kevin Warsh via CATO JournalI was honored to serve as a governor of the Federal Reserve System during the financial crisis. The times were tough, but the institution was strong—sustained by a Fed staff that was tired and tireless, hopeful and humble, brilliant without bravado.

Allan H. Meltzer: A Life Well Livedfeaturing Allan H. Meltzer via Cato InstituteThe world lost a great champion of liberty with the passing of Allan Meltzer on May 8, 2017, at the age of 89. A longtime Professor of Political Economy at Carnegie Mellon University, Allan was a prodigious worker who wrote hundreds of articles and more than ten books, including his monumental A History of the Federal Reserve and more recently Why Capitalism?

Fed’s Balance Sheet Strategy: What Now?Mickey Levy, E21The Fed left its policy rate unchanged at 1.5 percent to 1.75 percent at its May 1–2 FOMC meeting, as expected, and its official post-meeting policy statement reflected an upgraded assessment of inflation conditions.Since the Fed’s unconventional, emergency purchases of mortgage-backed securities (MBS) and Treasuries at the height of the severe financial crisis in November 2008, the Fed’s perception about a dramatically-enlarged balance sheet has evolved towards believing that it is conventional and normal.Read more here....

Trump’s trade team to China: Root for Lighthizer and NavarroClaude Barfield | AEIdeas As is often the case with the Trump administration, there is confusion regarding the agenda and goals for the upcoming trip. Whatever their faults, both Lighthizer and Navarro know the elements of China’s state capitalism and its mercantilist protectionism — and their impact on the US and the world trading system.

Satellites to Authoritarian Regimes: Your GDP Is Inflated Charles Hughes, E21Access to high-quality data on economic growth, employment, and other indicators is vital when evaluating the effectiveness of different public policies. Gross Domestic Product growth rates are often used as metrics to compare broader economic performances of different countries. Because of its prevalence in these comparisons, some leaders have an incentive to manipulate GDP growth to make their own economies look more impressive, particularly in countries with authoritarian regimes and a lack of checks and balances to protect data integrity.Read more here....

Private sector, not government, is key to job creationMichael R. Strain | Bloomberg View Through programs such as the earned income tax credit, public policy should support low-wage workers, helping ensure that no one who works full time and heads a household lives in poverty. And public leaders shouldn’t denigrate the jobs held by millions of American workers. That message is counterproductive. All leaders should encourage work.

Fiscal Theory Of Monetary Policyby John H. Cochrane via Grumpy EconomistTeaching a PhD class and preparing a few talks led me to a very simple example of an idea, which I'm calling the "fiscal theory of monetary policy." The project is to marry new-Keynesian models, i.e. DSGE models with price stickiness, with the fiscal theory of the price level. The example is simpler than the full analysis with price stickiness in the paper by that title.